News

The Australian stock market had a rollercoaster ride in March, initially dipping on President Trump’s announcement of 25% Tariffs on steel and 10% on aluminium imports. Australia negotiated a carve out, enabling stocks to somewhat recover. However the Banking Royal Commission and a weakness in technology stocks (in light of the Cambridge Analytica scandal) left the index 3.8% weaker.

Dividend imputation was adopted by former Australian Prime Minister Paul Keating in 1987. The purpose was to halt the double taxation of income. By way of example; a company like Telstra would do business in Australia, pay tax on earnings, and with funds left over would distribute dividends to its shareholders as a reward for investment. The problem was, the shareholder would then pay tax on the income they receive (including Telstra’s dividend distributions), thereby effectively paying tax on money that has already been taxed.

Christine Lagarde (who heads the IMF) recently cautioned “fix the roof while the sun is shining” to US law makers. Her comments refer to an adage of preparing (when times are good) for any potential storms that may be brewing. The US Congress appears instead to be sitting around the pool, enjoying beers and BBQ, instead of turning their energy to Budget repair.

Friends and family always tend to watch the gyrations of the Australian dollar. For them, it’s an indicator of spending power for an overseas holiday. But the reality is, the exchange rate represents many things; a comparison of growth prospects, relative inflation and interest rate differentials, speculation, and of course the usual supply and demand associated with global trade of imports and exports just to name a few.

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